Translation of interview published in NZZ on 21.06.2008

“Nestlé will never sacrifice long-term goals for short-term profit”

Nestlé’s new CEO Paul Bulcke on strategy and dealing with animosities

Paul Bulcke became CEO of Nestlé in April this year. In an interview with Gerhard Schwarz and Heinz Bitterli, he stresses the evolutionary nature of management changes at Nestlé and sees no need for revolutionary upheavals.

Mr Bulcke, you have taken over leadership of the company from Peter Brabeck, while he remains Chairman of the Board of Directors. How do you divide the work between you?
Paul Bulcke: Who does what on a formal basis is very clearly set out. The roles are not at all blurred. On the personal front, we continue to have a good relationship. We have been working together for years and Peter is available should I wish to discuss anything. It is also my task to develop the strategy and present it to the Board of Directors.

Will the double role that Brabeck held definitely remain an interim phase?
At Nestlé, it’s normal for the roles to be divided. The current state of affairs is the norm. But there may be phases in which a strict separation could damage the company and in which it would be necessary and justifiable to depart from that norm. The company statutes still permit this, and it makes sense to do so.

Nestlé has many extremely activist shareholder groups. Do you find them annoying and pointless?
There is virtually nothing in life that is completely senseless or useless. We are a large company with different shareholders; they mirror society, in which there are different opinions. We take these groups seriously; they sensitise us to what people are preoccupied with. In this sense, they have a role to play and are not at all pointless.

But you wouldn’t describe the activists, some of whom are really quite aggressive, as your friends, would you?
You can’t be friends with everyone, otherwise the term “friendship” would become meaningless. Where I come from, there’s a saying that tall trees are more exposed to the wind. As a large company, we are more often in the crossfire. We can’t please everybody all the time. Such people have a greater audience than they used to have. But it would be stupid to get worked up because of this.

How do you face criticism in specific terms?
Strict corporate governance principles form the basis of our approach. We define how we run our business and ensure that these principles are adhered to. With more than 270,000 employees worldwide, that’s not an easy task. People who don’t like our business principles will always criticise us and draw us into discussions. But we won’t let ourselves be diverted from our long-term path. We would never sacrifice long-term goals for short-term profit. To be successful in the long term, a company needs to create value for society. We talk about the concept of “creating shared value”. Everything that we do must be consistent with this goal. We have always done a great deal of good and we don’t hide this fact, but we don’t shout it from the rooftops either. Hollywood isn’t our style, but we need to do a better job of “selling ourselves”.

What do you mean by that?
I’m thinking, for instance, of the publications brought out with the annual report – this year about creating shared value, last year about water management, the year before about social responsibility in Latin America, and the year before that about our commitment to Africa. We don’t blow our own trumpet throughout the world, but we are getting better at demonstrating what we do. At the time of the tsunami, emotions were running high worldwide and there was a kind of beauty contest among the companies making donations. The public did not perceive us as being present and we came in for a great deal of criticism because of this, even though we sent water straightaway and our local management was directly involved in rebuilding schools. We need to be more upfront about communicating what we do. Of course, everything has to happen in connection with our business activities. That’s the most honest way for a company to make a contribution to society. I’ve worked in Latin American countries. Nestlé has been operating there for decades and stayed put, even though the situation sometimes wasn’t exactly comfortable in some places. But we make long-term investments. You give the country something and increase your competitive advantage there.

Aren’t companies that do more than the law requires providing an argument for demanding even more?
That’s why you have to say no sometimes, too. For example, if people say that we should give something back to society, even though we haven’t taken anything away from it. We work on the principle of giving something to society where it’s also in our own interests. It’s in our own interests, for instance, to build local schools near factories in rural areas, because parents can then work for us and have their children nearby. It’s honest to state that openly. And abiding by local laws goes without saying anyway. We could leave it at that, but we can do more. Take quality, for example, where there are usually minimum local requirements, but we have our own standards, which are higher.

What does Nestlé think about the private ownership of water?
The key issue is what water is worth. First of all, water isn’t expensive enough in agricultural areas. If you don’t pay for it, you don’t value it. And if you don’t value it, you waste it. The discussion in Europe is not based on experiencing a shortage of water. In regions where water is scarce, people have a completely different attitude to it; they give water the value that it has. The water problem is connected with geography; one region has too much while another doesn’t have enough. The question isn’t really whether water should be privatised or not. It’s more a question of using water more efficiently.

But you tend towards privatised systems?
We have private rights, we are allowed to use water commercially. We pay to do this, and it’s part of our business. Is water a human right? Yes, it is – like air, because it’s an absolute necessity. But it’s up to everyone to ensure that people have water. What benefit is there in not doing this on a private basis? How efficient are non-private structures, for example in the healthcare sector? It’s a highly emotional discussion, but we want to be part of that discussion, to stop it going in the wrong direction.

And it’s also in your own interests: The more nationalisation there is, the more difficult it becomes for you. Is that right?
What does nationalisation mean? Should all springs be taken over by the state? We bottle water. If you are against privately bottled water, what do you do with sweetened beverages? They are water. Or with beer? It’s mainly water. Where do you draw the line? Apart from that, bottled water is just a minute fraction of consumable water. How relevant is this discussion? Is it really about water, or is it more directed against us?

Was getting into the water business the right thing to do?
We have a vision, which is focused on nutrition, health and wellness. One of the most important foundations of this is water. Business here is a challenge, but it’s good. Until recently, we didn’t have a presence at all in many regions. We have invested considerable amounts and are still getting things off the ground in the developing countries. We had to endure court cases and we can sense resistance in the form of discussions about property. In addition, there’s the allegation that we transport water over long distances. But this is just a negligible amount of the whole volume that is transported, and the various waters have just as different characteristics in terms of taste and content as flavoured drinks. They don’t compete with tap water, but rather primarily with sweetened beverages.
“There’s enough technological scope to feed the world”

Although you stress strategic continuity, you won’t want to do everything in exactly the same way as your predecessor, will you?
That’s a question of style, everyone is different. But I’m in the privileged position of having helped influence strategy in the past few years as a member of the Executive Board. I can add a few twists and turns to the path we are taking. Above all, I believe that we have to increase the pace. We are living in a rapidly changing world. We need to concentrate more on a few core areas and make things less complex. This way, I can delegate more to the operational units, which will be necessary for us to get up to our target speed. We will concentrate on four fundamental competitive advantages.

And they are?
The first one is our product and brand portfolio. Our products make us a part of people’s lives. We have strong brands, 29 of which each generate sales of more than CHF 1 billion annually. The second advantage is our unique research and development potential. Some 5,000 employees work directly in this highly networked division, into which we invest CHF 1.9 billion a year. The third advantage is our global presence with factories; we have been in most of the regions for decades. In the past, these were simply developing countries, but now they’re emerging markets. In these countries, we are perceived as local companies because we have been there for so long. The fourth advantage is our people. Identification with our company is tangible everywhere in the world. That’s an incredible strength. These are people who can be trusted, who live out our values and our long-term philosophies.

Where and how do you capitalise on these advantages?
We are focusing on four core areas. The first platform is Nutrition (food with a specific additional benefit). This will gradually also encompass the classic product portfolio, as we check all our products for both consumer preferences and nutritional superiority using simple but effective tests. First of all, though, it comprises business with special foods, globally operated under a separate group unit. Here, we are targeting consumers with specific nutritional needs: infants, people who are ill or convalescing, athletes and people who are overweight. This is where we do most of our research. A second core area is the out-of-home market. In the United States, for instance, almost half of food expenditure is in this area. It’s a highly complex market, which is why it hasn’t been a strategic priority until now. Here, we are concentrating on the one hand on individual brands and on the other hand on culinary solutions for large-scale consumers, who are increasingly becoming extremely health-conscious. The third core area comprises the emerging countries, which – I am convinced – will develop extraordinarily fast and with strong local competition. We expect that, in the next ten years, a billion new consumers will come within reach of our products. The fourth area includes the premium products such as Nespresso. Up to now, we have tended to concentrate on the mid-range of fast-moving consumer goods and have kept a low profile in the luxury goods sector.

And we shouldn’t expect any changes of direction?
The basic direction will remain the same. Nutrition is a very strong vision. We’ve only just started our journey and there’s a long way to go. A vast amount of knowledge is needed to understand the interaction between nutrients and organisms, and this knowledge is increasing fast. We have ten new questions for every answer that we find. That’s why we’re also more vulnerable in this area, because something that’s healthy today can be seen as harmful tomorrow. And, what’s more, we’re living in a zero tolerance society.

You stress continuity, but most organisations benefit from change and having a new boss at the top, don’t they?
Did Peter Brabeck turn everything Helmut Maucher did upside down? No, it was an evolution. He didn’t revolutionise; he developed. I will also continue to develop; there’s no break in the chain. We are not facing a crisis. The biggest danger is the danger of becoming complacent. The worst thing would be being neglectful, not reacting and being undemanding. We have identified a number of gaps that we need to fill in order to take the lead. We are ambitious; we want to be the leader in numerous areas. We need to make this sense of urgency clear to people. But we don’t need a revolution in which more is destroyed than is built.

Recently there has been much talk of a food crisis. To what extent do you feel that you are, in a way, also responsible?
We certainly aren’t one of the causes, because we’re much too small an element in the industrial food chain. There are other reasons for price pressure: more demand, less supply, ill-judged agricultural policy, biofuel and speculation. All those things happened at the same time and caused a real storm. Our global presence and proximity to the markets enabled us to identify and react to many price developments at an early stage. We also accelerated our efficiency programmes immediately. And in the course of time, as the group transforms from a commodity-based company to a value-added, science-driven enterprise, the raw materials costs will fall proportionately. It’s also possible to adapt recipes and buy nutrients from other places, without jeopardising quality.

Do you think that food prices will stay high for a long time?
Yes, definitely. In the long term, they can’t remain at a level at which no one wants to produce. I don’t actually believe in the economic logic of commodity prices that double within a few weeks. That’s speculation, that’s panic, but prices won’t drop back to the level they were at before. That wouldn’t be healthy in the long term. All the same, there’s enough technological scope to feed the world

What is Nestlé doing in this technological field to fight hunger? Are you undertaking research?
We have a whole programme to get food to people with low incomes. We’ve been operating in large regions such as Africa for many years, generating annual sales of CHF 3 billion, and not with Nespresso. But, of course, we’re only active in areas where financial interaction is possible. We don’t belong in places where it’s not possible to do business on a monetary basis; that’s not our domain. We start where financial interaction is possible. This is the area in which we are expecting the additional billion consumers I mentioned. In these countries, we generate income by being there – we pay taxes and wages. And we use our scientific expertise to get the required nutrients to the people with nutrient deficiencies, using tailored products in a suitable form. And there’s no one who can do that more efficiently than we can.

Why do you concentrate so heavily on products and not diversify into services more?
That’s what we are doing. We acquired Jenny Craig (weight management). Jenny Craig is a service. It’s food, but with a whole package of consulting and care, and we need to develop that. People are getting older and staying healthier for longer. It would be possible to supply them with meals and diets tailored to their individual needs. The same concept that Jenny Craig uses for weight management can be applied to a whole host of other target groups. For example, we have knowledge about the effect of nutrients on people in different continents and cultures, depending on their genetic make-up. That’s why our worldwide presence gives us an advantage. There are no global answers to local problems.

Profile
Paul Bulcke is Belgian, was born in 1954 and studied commercial engineering in Belgium. He subsequently gained post-graduate qualifications in management in Belgium and later in Switzerland. After two years as a financial analyst following his studies, he joined Nestlé in 1979, first as a marketing assistant in Switzerland, Spain and Belgium. Between 1980 and 1996 he held various positions in marketing and sales for Nestlé in Peru, Ecuador and Chile, and between 1996 and 2004 he was market head, initially in Portugal and then in the Czech Republic, Slovakia and most recently in Germany. From 2004 to 2008 he headed Nestlé’s Zone Americas, which encompasses the United States, Canada, Latin America and the Caribbean. In autumn 2007 he was nominated CEO by the Board of Directors; he took up the position in April of this year.